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The automotive industry has spent US$49 billion. Makers of wireless communications gadgets like cellphones and tablets have purchased nearly US$170 billion worth of chips – more than 26 times as much as medical device manufacturers, according to Gartner.<\/p>\n
The shortages are assailing every industry. But much as airlines prioritise their most frequent flyers in the face of a flight-canceling blizzard, chipmakers are in many cases favoring their largest customers, expert say.<\/p>\n
“Everyone else is faced with the same struggle,” said Willy C. Shih, an international trade expert at Harvard Business School. “But it is true that if you are Apple or someone who buys a lot, you probably get more attention.”<\/p>\n
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The shortages are in large part the result of botched efforts to anticipate the economic impact of the pandemic.<\/p>\n
As Covid-19 emerged from China in early 2020, it sowed fears of a global recession that would destroy demand for a vast range of products. That prompted major buyers of chips – especially automakers – to slash their orders. In response, semiconductor plants reduced their production.<\/p>\n
By the time global industry figured out that demand for chips was surging, it was too late. Adding chipmaking capacity requires as much as two years of lead time and billions of dollars.<\/p>\n
In North America, Europe and elsewhere, medical device manufacturers are governed by strict product safety standards that limit their flexibility in adapting to trouble. Once a company like ResMed gains regulatory clearance to use a supplier, it cannot simply seek out a new one that might have a ready stock of chips without first going through a time-consuming approval process.<\/p>\n That meant that ResMed had to figure out how to squeeze more chips out of its existing supply chain.<\/p>\n Far from simple components, computer chips come in enormous varieties, each made with multiple parts that are typically made in multiple countries.<\/p>\n Faced with the prospect of getting shut out, Mr Farrell rooted through his supply chain, identifying the suppliers of his suppliers, in the hopes of persuading them to prioritize ResMed’s factories.<\/p>\n Mr Farrell soon realized that a primary reason that his chip supplier could not meet his demand was that – five levels up the chain – a Taiwanese manufacturer of silicon wafers had exhausted its inventory.<\/p>\n Because that plant could not deliver extra products, the next link in the chain – a company that combines wafers and circuitry – could not produce more of its components. That meant that another company that buys those components and packages them into clusters was unable to make more of them.<\/p>\n And that meant that ResMed’s supplier of circuit boards could not buy enough of those clusters, leaving ResMed’s factories in Singapore, Sydney and Atlanta short of circuit boards.<\/p>\n Mr Farrell took it on himself to try to unstick his supply chain. Drawing on government contacts in Australia, where he was born and raised, he set up a conversation with a board member of the wafer company.<\/p>\n In October, during a getaway with his wife in British Columbia to celebrate their anniversary, Mr Farrell took time out for a Zoom call. The board member introduced Farrell to another board member in London, who then reached the company’s head of sales in San Francisco. Mr Farrell connected the sales chief of the wafer company with ResMed’s president of operations in Singapore.<\/p>\n ResMed’s orders amounted to barely 1 per cent of the wafer company’s output. A mere fraction of 1 per cent in additional wafers was enough to satisfy ResMed’s needs.<\/p>\n The wafer manufacturer initially agreed to the increase, but then reversed that decision.<\/p>\n “In fact, they reduced our allocation,” Mr Farrell said.<\/p>\n All of this explained why Mr Norwood was stuck waiting for his CPAP.<\/p>\n He finally received his CPAP device in November, but the experience has left him shaken about the realities of who gets what in a time of bewildering shortages.<\/p>\n “It’s so unfortunate how money controls everything,” he said. “Our priorities are really skewed.”<\/p>\n Join ST’s Telegram channel here and get the latest breaking news delivered to you.<\/p>\n![](\"https:\/\/static.straitstimes.com.sg\/s3fs-public\/articles\/2021\/12\/12\/ac_cpap1_121221.jpg\")
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